Thursday, March 03, 2005

Buyout firm offers $3.5 billion for NHL

Check this out: a buyout firm has offered to purchase the ENTIRE National Hockey League. Talk about merger to monopoly - the Competition Bureau and the Antitrust folks in the States might have a thing or two to say about it. But it might not be that bad of an idea, from an economic standpoint.

You know what monopolies do, don't you? On one hand, they restrict supply in an attempt to raise prices. However, the NHL would become similar to a monopsonist - a single buyer of labor, which could drive wages and salaries downward. A monopsonist capitalizes on the inability of labour to offer their services elsewhere. Certainly, this could drive out players into leagues such as the ECHL , AHL or IHL, which could improve quality.

This would provide the perfect experiment to implement the Hypothetical Monopolist approach to analyzing market power. An HM is said to have market power if it can impose a "small yet significant non-transitory increase in price" - A SSNIP - usually at about 5% for a year or more.

TORONTO - An investment firm and a sports advisory company reportedly made a joint proposal to buy all 30 NHL teams for as much as $3.5 billion.

. . .

Before the work stoppage, the total value of the 30 NHL franchises was an estimated $4.9 billion, according to Forbes Magazine. The Detroit Red Wings (news) topped the list at $266 million, with the Edmonton Oilers (news) last at $86 million. The value of the arenas are part of the assessment.